By Darrell Preston

Published: June 17, 2016, Bloomberg News

For five years, the hospital system in Mississippi’s shipbuilding and oil-refining region on the Gulf Coast did what many cash-strapped local government agencies only wish they could do: It stopped making payments into its workers’ pension fund.

The decision wasn’t announced by the Singing River Health System or debated by Jackson County, which owns the Pascagoula-based health-care provider. It just ignored the annual bills to the retirement plan, even while telling employees that the contributions were being made, according to court records related to workers’ lawsuits.

Now the 141,000-resident county is on the hook to help bail out the system, which agreed to put nearly $150 million into the pension under a settlement approved June 2. The county will pay $13.6 million to Singing River over the next eight years to help keep it from defaulting on about $90 million of bonds.

The Mississippi saga is an extreme example of the squeeze from underfunded public pensions, with state and local governments holding about $1.7 trillion less than needed to cover promised benefits. But unlike in cities such as Chicago, where officials willfully shortchanged pensions year after year to free up funds, county supervisors were caught unaware of the soaring debt taxpayers are left to help cover.

“They weren’t making payments into the fund and we didn’t know it,” said Barry Cumbest, a member of the county’s board of supervisors. “Instead of contributing the money to the pension fund they were using it to build buildings and open clinics.”

The missteps by Singing River, which operates two hospitals and half a dozen clinics, tarnished Jackson County’s credit rating. In November, Moody’s Investors Service downgraded the county by three levels to A3, four steps above junk, because of its “sizable” liability to the health system and indicated the grade could be lowered further. Last week, the county hired Raymond James Financial Inc. to advise on ways to improve Singing River’s operations, Cumbest said.

Chris Anderson, the chief executive officer from May 1998 to February 2014, didn’t return two phone calls seeking comment. Richard Lucas, spokesman for Singing River, responded with a statement from the current chief executive, Kevin Holland, saying the settlement lets 3,100 participants in the pension be confident they will get their retirement benefits.

The missed payments were “under a previous administration,” Lucas said, in a brief interview. “Our job now is to move forward as best we know how.”

Singing River is the county’s third-largest employer behind Huntington Ingalls Industries, a military ship builder, and Chevron Corp. It stopped making pension payments after recession and its reimbursement rates were reduced by Medicaid and insurers, according to legal filings. On Nov. 29, 2014, the health-care provider froze the fund.

The plan’s finances had eroded considerably and continued to worsen. By the end of September 2015, its unfunded liabilities jumped to $304 million from about $4 million in 2009. That left it about 31 percent funded, meaning it had 31 cents for every dollar of promised benefits, less than half what it had four years earlier.

“The employees had received statements at the end of every year that said they had made these pension payments,” said Lucy Tufts, an attorney who represented the plaintiffs. “They had no way to know their funds were at risk.”

U.S. District Court Judge Louis Guirola Jr. in Gulfport, who approved the class-action settlement of employee lawsuits, referred the case to the U.S Attorney’s Office to investigate potential criminal misconduct, said a clerk, Vicki Kelly. Sheila Wilbanks, spokeswoman for the U.S. attorney’s office for the Southern District of Mississippi, didn’t return phone calls seeking comment.

The missed contributions totaled about $46.3 million over five years, according to court documents. The settlement requires Singing River to pay almost $150 million over 35 years -- the amount needed to make up for missed contributions and investment earnings that would have been made over that time.

County officials and employees could have known about the lack of pension funding, which was disclosed in annual financial statements from the health-care system, said Supervisor Ken Taylor, a retired shipyard worker and former city council member who ran for the board last year because of the pension problem.

“It was obvious what was going on, but nobody did anything about it,” said Taylor. “Nobody took responsibility.”

Lawyers Involved: